Section 72 Life Insurance in Ireland

What a Section 72 Policy Does

A Section 72 life insurance policy is a whole-of-life insurance product specifically approved by Revenue to fund Capital Acquisitions Tax liabilities. The mechanism is simple: when the policyholder dies, the insurance payout goes to the beneficiaries, who use it to pay the CAT bill. The payout itself is entirely exempt from CAT — provided every qualifying condition is met.

This makes Section 72 policies the standard tool for families expecting a significant inheritance tax liability, particularly where the estate's value is tied up in illiquid assets like property or a family business. Without the policy, beneficiaries often face selling the family home or business to generate the cash to pay Revenue by the CAT deadline.

The Qualifying Conditions

Revenue imposes strict rules for the CAT exemption to apply:

The payout must be used exclusively to pay CAT. If the insurance proceeds exceed the actual CAT liability, the surplus is taxed at 33% as a normal inheritance. This means the policy should be sized to match the anticipated tax bill — over-insuring creates unnecessary tax exposure on the excess.

The minimum coverage ratio must be met. The policy's sum assured must be at least 8 times the annual premium. This is a statutory requirement, not a guideline. A policy with an annual premium of €1,000 must provide at least €8,000 in cover. This ratio prevents the policy from being used purely as a tax-sheltered savings vehicle.

The policyholder must be under 75 at the time the policy is taken out. There is no mechanism to start a Section 72 policy after age 74. This deadline is absolute, and it means families who delay planning past the policyholder's mid-seventies lose access to this tool entirely.

The policy must be designated as a Section 72 policy from inception. You cannot retrospectively convert an ordinary life insurance policy into a Section 72 policy. The designation must be in place from the start, and the insurer must issue the policy under the correct statutory framework.

How Costs Work

Section 72 policies are whole-of-life products, meaning premiums continue until death (or until the policy lapses). The premium depends on the policyholder's age, health, the sum assured, and whether the premium structure is guaranteed or reviewable.

Guaranteed premiums stay fixed for the life of the policy. They start higher but provide certainty — you know exactly what you will pay every year until the policy pays out. This is generally the safer option for long-term planning.

Reviewable premiums start lower but are subject to periodic review (typically every five years). The insurer can increase premiums at review dates based on updated actuarial assumptions. Some policyholders have seen reviewable premiums double or triple at later review dates, which can make the policy unaffordable precisely when it matters most — in the policyholder's 80s and 90s, when lapsing the policy means losing decades of premiums paid.

A rough guide: a healthy 55-year-old might pay €150–€300 monthly for €100,000 of guaranteed cover. A 70-year-old seeking the same cover could pay €500–€900 monthly. Health conditions, smoking status, and family medical history all affect pricing significantly.

Common Pitfalls

Lapsing the policy. If premium payments stop and the policy lapses, all previous premiums are lost and there is no payout at death. For reviewable policies, a sharp premium increase at a review date is the most common cause of involuntary lapse.

Over-insuring. If the payout exceeds the actual CAT liability, the excess is taxed at 33%. Since property values and CAT thresholds can change between the date the policy is taken out and the date of death, periodic review of the cover amount against the expected tax liability is essential.

Assuming the exemption is automatic. The beneficiaries must actually use the payout to settle the CAT bill within one year of death. If they pocket the insurance money and pay the CAT from other sources (or do not pay it at all), the exemption does not apply and the full payout is taxable.

Starting too late. The age-75 cutoff is firm. Families who first think about Section 72 when a parent is already 76 have no option but to fund the CAT liability from liquid assets, asset sales, or Revenue instalment arrangements.

Who Needs One

Section 72 policies are most valuable for:

• Cohabiting couples facing Group C CAT (€20,000 threshold) on property worth hundreds of thousands — the Dwelling House Exemption may not apply, and the tax bill can exceed six figures
• Families with agricultural or business assets that would need to be sold to fund the CAT bill
• Parents with multiple children where the combined Group A inheritances will exceed the threshold

The Ireland End-of-Life Planning Guide covers Section 72 policy evaluation alongside the full range of CAT mitigation strategies — Dwelling House Exemption, joint tenancy structuring, and lifetime gift planning.

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